State Issues - Fairness in Leasing and Extraction of Natural Gas

Issue

For far too long, Pennsylvania landowners have been receiving unfair treatment by some natural gas companies in amount of royalty compensation being paid. Certain companies have been deducting “production costs” from landowners’ royalty payments. Many of the “production costs” being deducted from royalty checks are from activities performed well after drilling and gas extraction, such as transportation and marketing. In many cases, that takes the royalty payment far below the state’s statutorily established minimum requirement for royalty payments of at least 12.5 percent. Additionally, landowners often face numerous difficulties in verifying the accuracy of the net royalty payments paid by the gas company and the company’s claims of amount of gas extracted or the costs attributable to the gas extracted. We believe the General Assembly must make it easier for landowners to examine the accuracy of payments, and prohibit natural gas companies from actions to prevent landowner access to company records and information.

Background

Natural gas companies and landowners must work together for the benefit of the industry in Pennsylvania. Without landowners willing to allow gas infrastructure or wells on their property, energy companies would be severely limited in their ability to access natural gas in Pennsylvania. At the same time, landowners derive tremendous economic benefit when they receive lease and royalty payments for drilling. But we believe that in many cases, landowners are getting taken unfair advantage of by companies that, in our opinion, are violating the spirit of the lease terms.

We believe that one way to improve the confidence and trust for landowners is to provide greater transparency in royalty payments. Pennsylvania Farm Bureau supports legislation that would require natural gas companies to supply landowners, upon request, records related to production. This legislation would give landowners greater assurance that no fees are being deducted incorrectly or outside the scope deductions authorized in the lease. In addition, we believe legislation must be enacted that would prohibit gas companies from taking retaliatory action against a landowner—such as slowing or ceasing production—who legally challenges the accuracy of royalty payments in court. These legislative efforts are in response to tactics that can be taken right now against landowners. They must be prevented. And the General Assembly is in position to take actions that will assure landowners are being treated fairly and in good faith in gas extraction activities performed on their properties.

Pennsylvania must also resolve the reoccurring situation of landowners receiving royalties below the level of 12.5 percent that Pennsylvania statutes have established as the minimum amount of fair royalty payment. Pennsylvania Farm Bureau supports legislation which will ensure that landowners receive a net royalty payment at least equal to the state’s established royalty minimum, regardless of how much cost a natural gas company incurs in extracting and handling the gas received. It’s clear that the spirit and intent of our minimum royalty act is that landowners should receive 12.5 percent of the value of the gas extracted. However, recent court cases have failed to clearly limit what companies can assess as deductions. Given that natural gas extraction is expected to continue here for decades, Pennsylvania must clarify its minimum royalty law so that landowners clearly understand how they will be properly compensated for minerals taken from their property. Pennsylvania state government is also missing out on additional tax dollars that would be paid from the additional royalty amounts received by landowners. Landowners receiving predictable royalty payments are also likely to reinject that money back into the local economy in the form of new purchases and investments. Local economies, and state government, are losing out on revenue because of unchecked cost deductions. Pennsylvania farm families embrace home grown energy and are willing to lease their lands for production. But they want to be treated fairly by energy companies, and by their elected leaders. Our farm families are expecting members of the General Assembly to come down on the side of protecting the interests of Pennsylvania citizens.

For more information contact Darrin Youker, Pennsylvania Farm Bureau’s Director of State Government Affairs at 717.761.2740 or This email address is being protected from spambots. You need JavaScript enabled to view it.

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